En Banc Federal Circuit Rejects Petition To Reconsider 'Uniloc' Damages Rulings

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A Federal Circuit panel opinion that significantly limited calculations of damages awards based on reasonable royalties will not be reheard en banc, as a result of a 10-1 vote to deny rehearing by the U.S. Court of Appeals for the Federal Circuit on May 16 (Uniloc USA v. Microsoft Corp., Fed. Cir., No. 2010-1035, rehearing petition denied 3/16/11).

On Jan. 4, a panel overturned a district court's award of judgment as a matter of law that Microsoft Corp. was not liable for infringement of a patent on software copying protection (81 PTCJ 275, 1/7/11).

However, the court also identified errors in the testimony on damages in the case. Significantly, the appeals court ruled that the 25 percent “rule of thumb,” that many lower courts have used to determine what percentage of an infringer's profits should go to the patent holder, is “a fundamentally flawed tool.” Since that rule was the basis of the damages calculations heard in the instant case, the court said that the district court erred by not excluding the testimony.

The court further held that testimony as to the entire market value of the Microsoft products that used the alleged infringing component was improper as well. It reaffirmed that for the entire market value rule to apply, the patentee must prove that the patented feature is the basis for customer demand, and that testimony using that value as a “check” on the reasonableness of the 25 percent calculation skewed the jury's calculation.

Uniloc petitioned for an en banc rehearing, which was denied May 16. Before conducting a vote, according to the order, “The court granted leave to file a brief amici curiae to ten damages experts, all appearing pro se.”

Judge Kathleen M. O'Malley dissented from the decision but did not file a separate opinion.

Consequently, a $388 million jury award against Microsoft was vacated, but the company will now have to face the jury again on the damages issue alone, with new instructions from the Federal Circuit that should reduce that award considerably.

By Tony Dutra